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Write any two differences between stock dividend and stock splits.

Write any two differences between stock dividend and stock splits.

Solution

A stock dividend is the issuance of a company's own shares to its shareholders on a pro-rata basis without any consideration, whereas a stock split increases the number of shares with a proportionate reduction in par value per share — and although both increase the number of shares, they differ as follows.

Effect on par value and retained earnings: in a stock dividend the par value per share stays the same while the total par value increases, and retained earnings decreases because a part of the earnings is capitalized; in a stock split the par value per share decreases proportionately so the total par value is unchanged, and retained earnings is unaffected.

Journal entry and purpose: a stock dividend requires a journal entry (retained earnings debited, stock dividend distributable credited) and its main purpose is to retain profit in the business while still rewarding shareholders; a stock split requires no journal entry — only a memorandum entry — and its main purpose is to increase the marketability of the share by lowering its market price.

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    An unadjusted trial balance of a company are given below:

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    Bank 250,000
    Discount Allowed 7,000
    Plant and Machinery 200,000
    Purchases 215,000
    Debtors 90,000
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    Rent 70,000
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    Creditors 50,000
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    c. Outstanding interest on bank loan was Rs. 4,000

    d. Depreciation on Plant and Machinery at 15% per annum

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  3. 3.

    The financial transaction of a trader are provided below:

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